Slides in this set

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Key termsBalance of payments· Measures all the currency flows into and out of an economy in a given time periodCurrent account· The part of the balance of payments measuring income currency flows, especially payments for exports and importsTransfers· Payments flowing between countries in forms such as foreign aid, grants and gifts…read more

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Investment income · Profit and interest income flowing into a country that is generated from assets the residents of the country own abroadDirect overseas investment · Occurs when firms invest in or buy real productive assets located in foreign countriesPortfolio overseas investment · Occurs when financial services firms buy financial assets such as shares and government bonds issued in foreign countries…read more

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Speculative capital flows· Occur when companies, banks and rich individuals buy a currency in order to earn higher interest rates on bank deposits held in that currencyBalance of payments equilibrium· Occurs when the current account more or less balances over a period of years…read more

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Deflationary policy· Involves contractionary monetary or fiscal policy that shifts the AD curve to the leftDevaluation· Is a fall in the currency's exchange rate brought about by a government and central bank (formal) OR downward float/depreciation (informal) of the exchange rateJ-curve· Curve shaped like the letter J to map the possible time path of the state of the current account following a devaluation…read more

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What is the balance of payments?· Part of the national accounts· Attempts to measure all the currency flows into and out of the country in a particular time period· Only an estimate of currency flows ­ activities like smuggling, money laundering and late recording of data/inaccurate data mean that there are always errors…read more